Ford just invested $1 billion in a secretive AI startup founded by former Google and Uber execs

Ford is investing $1 billion in a secretive artificial intelligence startup headed by former Google and Uber execs to advance its self-driving car efforts.

The startup, Argo AI, was founded by Bryan Salesky, the former director of hardware for Google's self-driving-car efforts, and Peter Rander, Uber's engineering lead at its autonomous cars center.

Argo AI is based in Pittsburgh, Penn. and has hubs in Southeastern Michigan, where Ford is based, and the Bay Area of California.

The $1 billion investment will be spread out over five years as Ford looks to commercialize its self-driving technology by 2021.

According to Ford Chief Technical Officer Raj Nair, $1 billion is what it costs to develop advanced autonomous technology, and the investment is consistent with what Ford said its capital allocation in the space would be when it presented information to investors last year.

He told Business Insider, however that "the investment to deliver the entire autonomous vehicle" as planned in 2021 is more than that.

Argo AI will leverage roboticists and engineers from inside and outside of Ford to develop a virtual-driver system for the autonomous vehicles in 2021, Ford said in a press release. The virtual driver system will use machine learning, a branch of artificial intelligence that improves with experience, to act as the brain of Ford's self-driving cars.

The technology will deliver near-full-autonomy — a "level 4" capability — that can be used in very large geo-fenced urban areas. The Argo AI founder and Ford executives characterized the eventual application as an order of magnitude more sophisticated as the semi-self-driving systems currently on the road.

Ford is a majority stakeholder in Argo AI, but the startup wrote in a Medium post that it's structured to operate with independence. Salesky and Rander will serve in the board, as will Nair and John Casesa, Ford's VP for Global Strategy. Some Ford employees will become Argo AI employees as a result of the investment.

Employees will receive "significant equity participation" in Argo AI. On a conference call with Wall Street analysts and the media, Ford CEO Mark Fields said that Ford and Argo AI could take on additional investors in the future, or consider an IPO of the company.

Fields also said that the five-year cadence of the $1-billion investment wouldn't be revealed, but he added that there would spending above and beyond that figure for future costs. Argo AI expects to have 200 employees in total by the end of the year.

Ford acquired shuttle-bus service Chariot last year. Ford

Long term, the investment could expand Ford's lines of business.

"Our initial focus will be to support Ford's autonomous vehicle development and production, but in the future, we may license our technology to other companies and sectors looking for self-driving capability," Ford's Medium post reads.

Fields stressed the value of this licensing proposition is response to analysts' questions. The carmakers efforts around mobility services could yield returns in the 20% ballpark, Fields has said, compare with the 10% margins that a carmaker earns when business is good.

The investment takes place against the backdrop of the traditional auto industry, flush with cash after several record sales years, looking to play a major role in the transformation of mobility. General Motors has invested $500 million in ride-hailing service Lyft and spent nearly $1 billion acquire Cruise Automation, a self-driving startup. Ford recently bought Chariot, a shuttle-bus service based in the Bay Area.

The stakes are high. Ford is facing increasing pressure from Waymo, the self-driving-car company operating under Google's parent company Alphabet, and Uber.

A Waymo Pacifica. Waymo

Fiat Chrysler has supplied Waymo with 100 Pacifica minivans equipped with Waymo's self-driving-car hardware as part of the two companies' partnership. The minivans are currently being tested on public roads in Arizona and California. There are reports that Fiat Chrysler and Waymo could launch a self-driving taxi service by the end of 2017.

Waymo's self-driving-car software is considered among the most sophisticated out there. Waymo's cars have driven over 2 million miles, amounting to 300 years of human driving experience.

Uber has launched pilot programs for its self-driving cars in Pittsburgh and Arizona. The ride-hailing service is also partnering with Daimler, the parent company of Mercedes-Benz. Daimler will supply its self-driving cars to run on Uber's network.

Ford was careful to characterize its investment in Argo AI as just that, rather than as a de facto acquisition. Ford's majority stake, Fields said, leaves equity available for Argo AI to fight the "war for talent" and provide incentives for the best engineers and leaders to come work for the company. In a sense, Ford is functioning here both as a technology partner, lending vast global scale to Argo AI's development, and as a venture capitalist.

The automaker and Argo AI called this a "hybrid" model and said that it had been much discussed prior to the investment decision being made. "The real advantages came to the forefront," said Raj Nair. "It was an ideal way to solve the problem."